With mediation bypassed, San Bernardino’s next stop is Chapter 9 bankruptcy in 30 days.
The council followed the emergency declaration with a 5-2 vote to seek Chapter 9 bankruptcy protection. According to a statement by interim city manager Andrea Travis Miller, “the City of San Bernardino will move forward with its plan to file Chapter 9 bankruptcy protection in approximately 30 days.” The city will continue to negotiate with its creditors prior to the Chapter 9 filing, according to the city manager.
Recently, the interim city manager and Finance Director Jason Simpson released a report saying the city was soon to be insolvent. The city’s expenses were projected exceed revenues by $45 million.
In 2001, the general fund of San Bernardino was as high as $19 million. With downtown Los Angeles 60 miles to the west, the city of 211,000 has lost $10 to $16 million in annual revenue in the last few years.
Contracts with city workers that reduced salaries ended July 1, 2012. The increase in salaries and benefits is expected to cost around $10 million. Moreover, costs will rise even higher as merit increases resume. According to the report, pay concessions and a reduced work force of 20% over the past four years, San Bernardino will not have enough cash on hand to meet its obligations.
When it files bankruptcy, San Bernardino will become the third California city to file bankruptcy in this year. In June, the city of Stockton filed for Chapter 9 protection after three months of mediation with its creditors. Stockton’s budget was $26 million short after slashing services and employee compensation over a three year period. With the floodgates open, more cities in California are expected to file for Chapter 9 protection.